What Trump Should Have Said On Drug Prices

Republican Presidential candidate Donald Trump walks across the stage during a break in the Republican Presidential Debate in Detroit, Michigan, March 3, 2016. (GEOFF ROBINS/AFP/Getty Images)

Donald Trump’s healthcare plan, specked out in a web post, tackles the advancing issue of drug prices with an aged concept–the importation of foreign drugs that are ostensibly cheap because they flow from countries that impose price controls.

The debate over drug pricing isn’t new. Nor is the call for importation as a way to try and circumvent some of these costs. But the evolution in these two issues reveals why the Trump plan–while perhaps good politics–will offer consumers little relief.

In 2014, the real prices that consumers paid for prescription branded drugs grew at 5.5%, which is the slowest pace in five years. The pharmacy chain
CVS Health, which manages the prescription drug benefits of 65 million Americans, recently announced that the chain’s spending on prescription drugs rose just 5% in 2015.

This slowdown is a reflection of a market that’s increasingly competitive. The health systems and pharmacies that buy drugs on behalf of consumers can often extract big discounts on these medicines, and then pass these savings on to purchasers.

But that doesn’t mean we don’t have a challenge when it comes to the prices that consumers pay for drugs. The fact is that these savings aren’t always reaching consumers as more and more people find themselves underinsured for medicines.

Consumers are being forced into health plans that have very narrow and often “closed” drug formularies. These insurance schemes often don’t provide any coverage for many important medicines. Where health plans cover a drug, consumers are getting stuck with rising co-pays and out-of-pocket costs.

Obamacare has popularized these super skinny drug plans--not only in the health plans sold inside the Obamacare exchanges, but in employer-sponsored coverage as well. We have a growing “coverage gap” when it comes to branded prescription drugs. But that doesn’t mean that we don’t need to also reform the system for developing and marketing drugs, to make sure that it’s providing more opportunity for the sort of competition that can lower drug costs and expand access.

The problem is that drug importation doesn’t address any of these core challenges. In fact, the imported drugs may end up being quite expensive.

For one thing, the foreign drugs would mostly flow from North America, not Europe. And they’d largely be imported from Mexico, not Canada, given how exchange rates have changed since we last had this “re-importation” debate in earnest a decade ago. Canadian drugs are no longer as cheap when they’re purchased in U.S. dollars.

Moreover, under any reasonable scheme, the importation would be confined to drugs from facilities that have already undergone FDA inspection, and produce foreign-approved versions of medicines already sold in the U.S. But the branded firms own those facilities. They’re not going to simply ramp up the production lines to accommodate new demand, if it means that the drugs will be imported into the U.S. to skirt their tiered pricing. Nor will the foreign countries allow their local supply to be skimmed off, only to create local shortages of important medicines.

But the bigger issue is the cost of implementing such a scheme.

Given the rapid growth in the prevalence of sophisticated counterfeit drugs, no politician will approve a drug importation scheme without implementing a reasonable measure of regulatory oversight. There are simply too many channels for fake drugs to enter any importation scheme to forgo some meaningful controls.

Yet when importation of foreign drugs is done under a regulated scheme, it really wouldn't save money. I know. I worked on sketching an importation scheme for the FDA regulation of imported drugs when it looked like similar legislation would pass in 2004. That scheme would have added so much cost to the imported drugs; they wouldn’t be much cheaper than drugs sold inside our closed American system.

Counterfeiting of drugs has exploded since we last had a serious debate about the importation of branded drugs. In just one year, 2013, the Pharmaceutical Security Institute reports that worldwide incidents of pharmaceutical crime rose almost 9%. During one week in 2013, the FDA, in partnership with Interpol, seized $41 million worth of illegal or counterfeit medicines, and shut down over 1,600 illegal online pharmacies. Mexico is a major global source of those fake drugs. Its illicit trade stands at an estimated $650 million per year–equal to 10% of its total drug sales.

Providing a reasonable measure of oversight to reduce the number of counterfeits coming through an importation scheme is complex and costly. It’s very hard to “inspect in” safety after a drug is manufactured. There’s no question that a drug importation scheme will increase the flow of counterfeits in the U.S. supply chain. Policy makers would have to weigh that cost against any perceived benefits.

So how should we address drug pricing, beyond repealing Obamacare and its costly regulations that have accelerated the hollowing out of drug coverage?